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Green Contracting

Structuring renewable agreements to survive change.

Fortnightly Magazine - November 2009

reasonable sharing of costs between wind projects and their customers and the rest of the load in SPP’s region.

Even with the attention given by policy makers, regulators and transmission providers to the macro solutions to potential transmission barriers to renewable development, contracts for renewable purchases need to address specific circumstances and an allocation of transmission risk needs to be allocated.

If a utility is using a competitive procurement process for renewable energy, it needs to evaluate all elements of the proposal, such as the point of delivery ( i.e., the point at which the seller and buyer will transfer title and risk of losses), the extent of the infrastructure to be installed for interconnection, and the extent of network upgrades needed to accommodate the interconnection beyond the point of delivery. Whether the cost is borne in the first instance by the developer or by the transmission provider, the cost eventually is borne by some utility’s ratepayers, and thus the total cost should be a pertinent consideration in selecting among competing resources. To facilitate its evaluation, a buyer may ask to receive interconnection studies and information on the progress of the seller’s interconnection as part of the bid and throughout the interconnection process.

In negotiating the allocation of transmission risk, the buyer that’s using the purchase to satisfy a renewable purchase mandate might be particularly incented to consider creative and flexible allocations of risks so that needed interconnection facilities and network upgrades will be funded, constructed and ready in a timely manner. For example, a buyer might agree to bear up-front the costs of network upgrades, as well as more extensive transmission improvements that would permit the buyer to designate the renewable resource as a full network resource in service to the buyer’s load. The buyer thus may satisfy a renewable portfolio standard, and the seller can minimize the risk of curtailment because network resource interconnection service is of a higher quality than energy resource interconnection service.

The contract should set project milestones, including dates by which the seller must execute an interconnection agreement with the transmission provider and have the interconnection facilities constructed and installed. The parties should negotiate clear consequences if these milestones aren’t satisfied. If there are extensive network upgrades that the transmission provider is responsible for constructing, delay risk needs to be addressed so the seller isn’t inappropriately penalized if it’s ready to deliver energy, but the transmission system isn’t ready to accommodate delivery. Potentially resolvable delays should be remedied if possible. For example, FERC recently granted El Paso Electric a one-time waiver of its interconnection queue processing procedures so it could conduct cluster studies, thereby speeding up the study process for all queued projects, including those chosen to meet state renewable requirements.

Generation Forecasting and Deviations

A continuing challenge for all intermittent resources is the problem of forecasting and scheduling deliveries and the resulting deviation penalties when weather conditions change unexpectedly. Schedule 9 of the pro forma open-access transmission tariff was revised by FERC’s Order No. 890 to impose lighter penalties for deviations on intermittent resources than